FAR6

Question 1

Funded Status (reported in Statement of Financial Position)

Answer 1

FV of plan assets - PBO = funded status

Pension Plan Asset (noncurrent)
Overfunded = FV of plan assets > PBO

Pension Plan Liability (current, noncurrent, both)
Underfunded = PBO > FV of plan assets

Question 2

Defined Contribution Plan

Answer 2

Specifies the periodic amount of contributions to the plan (charge expenses, and credit cash)

Question 3

Defined Benefit Plan

Answer 3

Defines the benefits to be paid to employees at retirement (computed using actuarial assumptions of future benefit payments)

Question 4

Accumulated Benefit Obligation (ABO)

Answer 4

Based on current and past compensation levels (only current salaries)

Question 5

Projected Benefit Obligations (PBO)

Answer 5

The actuarial present value of all benefits attributed by the plan’s benefit formula to employee service rendered prior to that date. PBO only uses assumptions as to future compensation levels (guess future salary)

Question 6

Calculating PBO

Answer 6

B: Beginning PBO

A: Service cost, Interest cost, Prior service cost from current period plan amendments, Actuarial losses incurred in the current period

S: Actuarial gains incurred in the current period, Benefits paid to retirees

E: Ending PBO

Question 7

Calculating Actual return on plan assets

Answer 7

B: Beginning FV of plan assets

A: Contributions,
Actual return on plan assets (squeeze)

S: Benefits paid to retirees

E: Ending FV of plan assets

Question 8

Income Statement (expense) formula

Answer 8

S   current Service cost
I     Interest cost
(R)  (Return on plan assets)
A   Amortization of prior service cost
(G) (Gains) and Losses
E    amortization of Existing net obligations (+) OR net assets (-)
= Net periodic pension cost

Question 9

Net Periodic Pension Costs JE

Answer 9

DR: Net periodic pension costs
CR: Pension benefit liability
CR: Other comprehensive income

when pay: Pension benefit liability
Cash

Question 10

Interest Costs

Answer 10

Beginning of period PBO x Discount rate

Question 11

(Expected return on plan assets)

Answer 11

Beginning FV of plan assets x expected rate of return on plan assets
= (expected return on plan assets)

Question 12

Amortization of unrecognized prior service costs

Answer 12

Beginning unrecognized prior service cost / Average remaining service life
= Amortization of prior service cost
(unamortized is in AOCI)

Question 13

(Gains) and Losses(+)

Answer 13

The difference between the expected and actual return on plan assets when the expected return on the plan assets is used AND changes in actuarial assumptions
(unamortized is in AOCI)

Question 14

Accounting for (Gains) and Losses

Answer 14

Recognize G/L immediately in I/S OR Recognize G/L in OCI and amortize over time using the corridor approach

Question 15

Corridor Approach: Accounting for (Gains) and Losses

Answer 15

GREATER of:
Market related value of plan assets = assets OR PBO = liabilities multiplied by 10%

Then divided by Average remaining service life

Question 16

amortization of Existing net obligations/net assets at implementation

Answer 16

PBO - FV of plan assets
= Initial unfunded obligation / 15 years OR average employee job life (GREATER OF)
= Minimum amortization
(unamortized is in AOCI)
(net obligations +, net assets -)

Question 17

B/S Accounting Pension Plan Contributions

Answer 17

DR: Pension benefit asset/liability
CR: Cash
to fund the pension

Question 18

Beginning and ending funded status (FV plan assets - PBO) of a defined benefit plan

Answer 18

Beginning funded status
\+ contributions
- service cost
- interest cost
\+ expected return on plan assets
- prior service cost
\+ net gains
- net losses
= Ending funded status

Question 19

Prior Service Cost and Pension Losses

Answer 19

DR: OCI (goes to AOCI)
CR:    Pension benefit asset/liability
DR: Deferred tax asset
CR:    Deferred tax benefit - OCI
(pensions gains are the opposite)

Question 20

Amortization of Pension Expense

Answer 20

DR: Net periodic pension cost
CR:    OCI (take it out of AOCI)
DR: Deferred tax benefit - OCI
CR:    Deferred tax benefit - I/S
(following year JE's are opposite)

Question 21

U.S. GAAP Pension Plan Disclosures

Answer 21

More is better (disclose everything)

DO NOT DISCLOSE: repeat info and predict/project good items

Question 22

Defined Benefit Pension Plan F/S

Answer 22

F/S presented by the pension plan itself

Plan Investments reported at FV

Question 23

Accumulated Postretirement Benefit Obligation (APBO)

Answer 23

Is the PV of future benefits that have vested as the measurement date (is discounted using the assumed discount rate)

Question 24

Attribution period

Answer 24

APBO is accrued during the period the employee works (from hire date to full eligibility date)

Question 25

Amortization or Expense of the Transition Obligation

Answer 25

Either immediately expense or amortize over average remaining service period or 20 years (GREATER of)

Question 26

Funded Status - B/S

Answer 26

FV of plan asset - APBO = funded status Noncurrent: Postretirement benefit plan asset Overfunded (FV of plan assets > APBO) Current, noncurrent, both: Liability Underfunded (APBO > FV of plan assets)

Question 27

Liability Recognition

Answer 27

The employer's obligation is attributable to services already rendered The obligation relates to rights that vest/accumulate Payment of the compensation is probable The amount can be reasonably estimated

Question 28

Vacation/Sick Pay Benefits

Answer 28

Accrue for vesting | If non-vesting accumulating rights then DO NOT accrue

Question 29

Permanent Differences

Answer 29

Affects "current", not "deferred"

Question 30

Temporary Differences

Answer 30

Affects "current" and "deferred"

Question 31

Deferred Tax Liabilities

Answer 31

Future tax accounting income > future financial accounting income (tax deductible first/f.s. expense later) (f.s. income first/taxable income later)

Question 32

Deferred Tax Asset

Answer 32

Future financial accounting income > future tax accounting income (gift certificate)

Question 33

JE to record taxes

Answer 33

``` DR: Income tax expense - current (YR 1) DR: Income tax expense - deferred CR: Deferred tax liability CR: Income tax payable DR: Deferred tax liability (YR 2) CR: Income tax benefit - deferred ```

Question 34

Valuation method

Answer 34

``` (50%) that part of all the deferred tax asset will not be realized, a valuation allowance is recognized DR: Deferred tax asset (YR 1) DR: Income tax expense - current CR: Income tax payable CR: Income tax benefit - deferred DR: Income tax expense - deferred (YR 2) CR: Deferred tax asset ```

Question 35

Uncertain tax positions

Answer 35

Aggressive tax positions Step 1 - the evaluation is based on the expected outcome in the court of last resort Step 2 - the evaluation is based on the expected outcome in a settlement with the taxing authority

Question 36

Enacted tax rate

Answer 36

Measurement of deferred taxes based on the applicable tax rate (for temp. differences)

Question 37

Changes in Tax Laws/Rates

Answer 37

I - income from continued operations (change in estimate - prospectively)

Question 38

Net temporary adjustment

Answer 38

Deferred taxes: end balance - current balance | = requirement adjustment

Question 39

B/S presentation Income taxes

Answer 39

"based upon what gave birth to it" Rule 1: Deferred tax items should be classified based on the classification of the related assets/liability for financial reporting Rule 2: exceptions (not related to asset or liability should be classified based on expected reversal date of temp. difference)

Question 40

B/S deferred Net Across

Answer 40

All deferred tax assets and liabilities classified as "current" netted All deferred tax assets and liabilities classified as "noncurrent" netted

Question 41

Operating Loss Carrybacks

Answer 41

100% collectible (no valuation allowance) | Used to reduce taxes due or receive a refund for a prior period

Question 42

Operating Loss Carryforwards

Answer 42

Valuation allowance may be necessary (required) - 2 years: recognized to the extent that the tax benefit is more likely not realized

Question 43

Investee's undistributed earnings

Answer 43

Income tax return = dividend income GAAP F/S = % of sub's income = temp. difference Ownership 0-19% - 70% exclusion (perm. diff.) Ownership 20-80% - 80% exclusion Ownership over 80% - 100% exclusion